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I'm not expert on this field so may not able to answer your question precisely, but I can try the best to offer you some hints. According to the pure expectations hypothesis(PEH), forward rates provide unbiased predictions about future spot rates. Even if the PEH can be rejected, various scholars including Fama has provided evidence for the weaker form of ...


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Assume we have $r(t)$ continuously compounded spot rate for maturity $t$. The price of the 2-year bond with semi-annual coupon $C$ is known to be $P$. We already have $r(0.5)$ and $r(1)$. We need $r(2)$ and $r(1.5) = f(r(1), r(2))$. Then $$ P = C [e^{-0.5 \times r(0.5)} + e^{-r(1)}+e^{-1.5 \times r(1.5)}] + (1+C)e^{-2 \times r(2)} $$ Using linear ...



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